Fewer Americans signed contracts in August to buy previously owned homes, a sign that rising mortgage rates may have slowed housing market momentum.
The index of pending home sales fell 1.6 percent, after a revised 1.4 percent decrease in July that was bigger than initially reported, figures from the National Association of Realtors showed today in Washington. Economists forecast a 1 percent decline in the gauge from the month before, according to a median estimate in a Bloomberg survey.
Mortgage rates that hit their highest in August since July 2011 and a limited number of existing homes may have caused some prospective buyers to hold back, slowing the real estate recovery. Employment growth and gains in income could help buyers to afford houses, fueling the broader economy.
“We didn’t have a particularly good second quarter, we’re not producing big increases in payrolls, so that kind of supports a plateau,” Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, said before the report. “There’s a little bit of indigestion on the part of potential homebuyers because mortgage rates have come up more than a percentage point. However, I think it’s only indigestion. I don’t think it’s anything fatal to the housing industry.”
Estimates in the Bloomberg survey of 39 economists for pending home sales ranged from a decline of 5 percent to an increase of 1 percent.
The Realtors’ report showed purchases increased 2.9 percent from August 2012 on an unadjusted basis.
The pending sales index was 107.7 on a seasonally-adjusted basis. A reading of 100 coincides with the average level of contract activity in 2001 and “historically healthy” home-buying traffic, according to the NAR.
“Moving forward, we expect lower levels of existing-home sales, but tight inventory in many markets will continue to push up home prices in the months ahead,” the group’s chief economist Lawrence Yun said in a statement.
Three of four regions showed a decrease from a month earlier, led by a 3.5 percent drop in the South. Pending sales climbed 4 percent in the Northeast.
The group said it expects existing-home sales to reach about 5.2 million this year with little change in 2014. Some 4.7 million previously owned homes were sold in 2012.
While rising mortgage rates may have initially stimulated demand by prompting would-be buyers to get into the market to lock in low rates, the appeal may have waned with climbing costs. The average rate for a 30-year fixed mortgage was 4.58 percent in the week ended Aug. 22, the highest level since July 2011.
However, borrowing costs have since dropped -- falling to 4.50 percent in the week ended Set. 19 -- after the Federal Reserve announced that it planned to maintain its $85 billion in monthly asset purchases, a program that was responsible for pushing mortgage rates to record lows.
Increased demand for housing this year has pushed home prices up. The S&P/Case-Shiller index of property values in 20 cities increased 12.4 percent from July 2012, matching the median projection of 31 economists surveyed by Bloomberg and the biggest year-to-year advance since February 2006, a report from the group showed this week.
The recovery in the housing market has aided the economic expansion as new homeowners outfit their purchases with appliances and furniture. Hooker Furniture Corp., a Martinsville, Virginia-based residential furniture company, is among companies watching for signs of slowing in housing as they look towards future sales.
“The housing market has slowed slightly with rising mortgage rates and rising housing costs. We do believe our industry is tied closer to housing than any other,” Chief Executive Officer Paul B. Toms said in a Sept. 4 conference call, while he noted that other indicators are more positive. “Housing affordability is still favorable from a historical perspective along with the improvements we continue to see in consumer confidence.”
Economists consider pending home sales a leading indicator because they track contract signings. Existing home sales are tabulated when a contract closes, usually a month or two later.